Retirement - Stage 1: 18-35 Year Olds

May 01, 2017

I have 3 children, all of whom are in this category. Their ages are 32, 30, and 22. I’ve talked with a lot of their friends too – about life, kids, work, and yes, finances. Here’s a common thread:

“I finally understand why my parents griped so much about taxes, as my take home pay is so much less than I supposedly make, then I pay $1200 in rent/mortgage, I have student loan payments of $200-$400, My car payment is $300 per month, and I do like to eat occasionally, so how am I supposed to have money left to save for retirement?” Younger adults have a point here – there isn’t a lot of “fat” in the budget, so how do they save for retirement?

The answer thankfully is that it doesn’t take a lot. For the people from 18-35, the secret is simply time. If you save a little bit over a long period of time, it makes all the difference in the world. In an April 24, 2017 article in Financial Planning, author Craig Israelsen lays out some simple math starting with these hypothetical stats:

  1. You start working at age 25 making $35,000
  2. Your income increases 2.5% each year during your working career
  3. When you retire at age 70, your final salary is $103,000
  4. During your 45 year working career you will have earned about $2.85 million

If you were to save 10% of your salary during this time and put it in a jar, where you made no interest during that time, you would save $285,000. If, on the other hand, you invested the 10% savings and earned a 6% average return* your account value would be over $1 million at age 70.

Now, we all know that not everyone will see their earnings increase steadily all the way through their working life, not everyone wants to work to age 70, and we know not everyone will save 10% of their salary right from the start. The point is however, that if you start early and save regularly, you have a very good chance of a tidy nest egg by the time you retire. Mr. Israelsen calls this the “crock-pot” method (slowly cooking the retirement savings, versus waiting until much later and trying to pack money away for retirement, which he calls the “microwave method”).

If you have a 401k plan, Simple plan, 403b, or other plan at your job - start contributing! You can start with a very small amount – say a few percent of your earnings or a flat dollar amount like $50 or $100 per month. This is especially a good idea if your work retirement plan offers a matching component – free money your employer will add to your account, but only if you participate! If you don’t have a plan at work, or are self-employed, open an IRA or a Roth IRA and contribute each month. Better still make it an automatic thing so you don’t think about it.

Once you’ve started, try increasing the percent you save every 6-12 months until you get up to 10% of your earnings. You’ll be surprised that you really can get by without it if you “creep up on it”.

As always, if you have any specific questions, feel free to email me at Also, if you want to do a little of the math yourself, there are some retirement and savings calculators located under the “Resources” tab on this website.

*This is a hypothetical example and is for illustrative purposes only. No specific investments were used in this example. Actual results will vary. Past performance does not guarantee future results.